tagged w/ Eurozone
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Common sense strikes another blow at austerity
"Chancellor Angela Merkel’s party suffered a severe defeat Sunday in a pivotal German state vote likely to award her main rivals a major boost in their bid to soften her austerity drive in Europe.
Around 16 months before national elections, the snap poll in the state of North Rhine-Westphalia, Germany’s most populous with 18 million people, is closely watched as a taste of things to come at federal level."...Common sense strikes another blow at austerity
"Chancellor Angela... more
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"France and Greece have shown it is possible to resist this ideology. This month the Irish too may vote to stop 'behaving'"
Article by Gavan Titley and John O'Brennan, guardian.co.uk, Thursday 10 May 2012"France and Greece have shown it is possible to resist this ideology. This month... more
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"Chances of Greece leaving the eurozone are growing, as political leaders prepare for last-ditch coalition talks in Athens""Chances of Greece leaving the eurozone are growing, as political leaders prepare... more
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"Two years ago, the prospect of a state falling out of the single currency area was unthinkable. But as the Greek electorate turns against austerity, it is becoming all too easy to picture how breakup might happen"
Article by Julia Kollewe, The Observer, Sunday 13 May 2012"Two years ago, the prospect of a state falling out of the single currency area... more
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http://aje.me/KcM6o0
Is sure hope they _and_ the French get out of the Eurozone. They will be punished for their arrogance in the short term, but they will be free of outsiders trying to override decisions made by a democratically elected governmet.http://aje.me/KcM6o0
Is sure hope they _and_ the French get out of the Eurozone.... more
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So it looks like France will be the first European country to stop this austerity madness. Greece and Spain will likely follow, as soon as they can get elections called. I remember thinking that the EU could be a good thing. A single currency, border restrictions reduced, things would better for everyone. But it seems that the critics of the EU were right. What's happened is that un-elected officials have effectively taken away sovereignty from these countries. I don't know what the future is for the EU or the Eurozone, but going forward, I don't think it will continue in its current incarnation.So it looks like France will be the first European country to stop this austerity... more
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Earlier today...This hearing of the Domestic Monetary Policy and Technology Subcommittee examines the Federal Reserve's assistance to the Eurozone and the impact of that assistance on the U.S. monetary system and the dollar.
http://www.youtube.com/watch?feature=player_embedded&v=ripsfc1H-TcEarlier today...This hearing of the Domestic Monetary Policy and Technology... more
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(In German, English subtitles are available)
This was a reworking of a 1963 sketch titled "Dinner for One" (which is a one take, black & white, 18 minute film, repeated airings in several countries towards the New Year), only this was a stint on the Eurozone crisis and heads of Nicolas Sarkozy and Angela Merkel replacing the original. Don't ask why Sarkozy is the butler in this...
Video from YouTube: http://www.youtube.com/watch?v=CC6f2RB9iO8(In German, English subtitles are available)
This was a reworking of a 1963 sketch... more
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All over Europe, headlines are declaring that the eurozone is on the verge of collapse. Many people falsely assume that this will mean the end of the euro and a return to national currencies. Unfortunately, that is not going to be the case at all. Instead, this is going to be yet another example of how the elite attempt to bring order out of chaos. The European elite have no intention on giving up on a united Europe. Rather, they hope to be able to bring to life a new "United States of Europe" out of the ashes of the existing eurozone. Over the coming months we will see widespread panic and fear all across Europe. The euro will likely sink like a rock and there will probably be huge financial problems in Europe and all around the globe. But for the European elite, a great crisis like this represents a golden opportunity to tear down the existing structures and build new ones. The solution that the European elite will be pushing will not be to go back to the way that Europe used to be. Instead, they will be pushing the idea of a much more tightly integrated Europe really hard.All over Europe, headlines are declaring that the eurozone is on the verge of... more
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George Papandreou has announced that there will be a Greek referendum to approve the EU bail-out deal
GREECE'S astonishing decision to call a referendum – "a supreme act of democracy and of patriotism", in the words of premier George Papandreou – has more or less killed last week’s EU summit deal.
The markets cannot wait three months to find out the result, and nor is China going to lend much money to the EFSF bail-out fund until this is cleared up. The whole edifice is already at risk of crumbling. Société Générale is down 15pc this morning. The FTSE MIB index in Milan has crashed 7pc. Italian bond spreads have jumped to 450 basis points.
Unless the European Central Bank step in very soon and on a massive scale to shore up Italy, the game is up. We will have a spectacular smash-up.
If handled badly, the disorderly insolvency of the world’s third largest debtor with €1.9 trillion in public debt and nearer €3.5 trillion in total debt would be a much greater event than the fall of Credit Anstalt in 1931. (Let me add that Italy is not fundamentally insolvent. It is only in these straits because it does not have a lender of last resort, a sovereign central bank, or a sovereign currency. The euro structure itself has turned a solvent state into an insolvent state. It is reverse alchemy.)
The Anstalt debacle triggered the European banking collapse, set off tremors in London and New York, and turned recession into depression. Within four months the global financial order had essentially disintegrated.
That is the risk right now as the reality of Europe’s make-up becomes clear.
The Greek referendum – if it is not overtaken by a collapse of the government first – has left officials in Paris, Berlin, and Brussels speechless with rage. The ingratitude of them.
The spokesman of French president Nicolas Sarkozy (himself half Greek, from Thessaloniki) said the move was “irrational and dangerous”. Rainer Brüderle, Bundestag leader of the Free Democrats, said the Greeks appear to be “wriggling out” of a solemn commitment. They face outright bankruptcy, he blustered.
Well yes, but at least the Greeks are stripping away the self-serving claims of the creditor states that their “rescue” loan packages are to “save Greece”.
They are nothing of the sort. Greece has been subjected to the greatest fiscal squeeze ever attempted in a modern industrial state, without any offsetting monetary stimulus or devaluation.
The economy has so far collapsed by 14pc to 16pc since the peak – depending who you ask – and is spiralling downwards at a vertiginous pace.
The debt has exploded under the EU-IMF Troika programme. It is heading for 180pc of GDP by next year. Even under the haircut deal, Greek debt will be 120pc of GDP in 2020 after nine years of depression. That is not cure, it is a punitive sentence.
Every major claim by the inspectors at the outset of the Memorandum has turned out to be untrue. The facts are so far from the truth that it is hard to believe they ever thought it could work. The Greeks were made to suffer IMF austerity without the usual IMF cure. This was done for one purpose only, to buy time for banks and other Club Med states to beef up their defences.
It was not an unreasonable strategy (though a BIG LIE), and might not have failed entirely if the global economy recovered briskly this year and if the ECB had behaved with an ounce of common sense. Instead the ECB choose to tighten.
When the history books are written, I think scholarship will be very harsh on the handful of men running EMU monetary policy over the last three to four years. They are not as bad as the Chicago Fed of 1930 to 1932, but not much better.
So no, like the Spartans, Thebans, and Thespians at the Pass of Thermopylae, the Greeks were sacrificed to buy time for the alliance.
The referendum is a healthy reminder that Europe is a collection of sovereign democracies, tied by treaty law for certain arrangements. It is a union only in name.George Papandreou has announced that there will be a Greek referendum to approve the... more
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The debt crisis in Europe just seems to get worse with each passing day, and it is yet another glaring example of why the EU is a mind blowing failure. The EU is made up of 27 nations that all have their own economic policies, and 17 of those nations are trying to use the euro as a common currency. But when you have 27 different governments pulling in different directions, it is inevitable that there are going to be major problems. The stunt that Greek Prime Minister George Papandreou just pulled is a perfect example of the nightmare that the EU has become. European officials worked really hard to pull together a deal to address the debt crisis (of course the deal was a total mess, but that is another matter), and a couple of days later Papandreou decides that Greece should hold a national referendum on it. It is so bizarre that it almost defies words. But that is what happens in the EU. Someone else always wants to have a say. Someone else always wants to throw a fly into the ointment. Someone else always want to throw in their two cents. That is why the EU should break up. It is a total failure and it is time that we all admitted it.The debt crisis in Europe just seems to get worse with each passing day, and it is yet... more
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The outline of a large and ambitious eurozone rescue plan is taking shape, reports from the International Monetary Fund (IMF) in Washington suggest.
Link : http://www.bbc.co.uk/news/business-15055713The outline of a large and ambitious eurozone rescue plan is taking shape, reports... more
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Crisis meeting between Angela Merkel and Nicolas Sarkozy was arranged before the participants knew of the disastrous growth figures in the Eurozone that emerged in the morning. Today the Germans and the European Union are once again focusing the peoples’ minds on the Holy Roman Empire. Otto von Hapsburg said, “The [European] Community is living largely by the heritage of the Holy Roman Empire, though the great majority of the people who live by it don’t know by what heritage they live.” http://www.makeahistory.com/index.php/recent-news/42996-fourth-reich-in-disguise-how-germany-is-using-the-financial-crisis-to-conquer-europeCrisis meeting between Angela Merkel and Nicolas Sarkozy was arranged before the... more
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worrg
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10 months ago
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This appeared in the printed version of the Irish Examiner Saturday, August 06, 2011
UNCERTAINTY, and even fear, again stalks global financial markets. All of the key market indices — interest rates, exchange rates, and bond yields — signal a profound level of uncertainty, not alone about where the global economy is headed.
But more importantly, they indicate a lack of confidence in policymakers. Nowhere is this more evident than in the eurozone. Market data signal that we are close to the end of the road.
What we have seen this week has been a massive shift by the markets into cash holdings, which reinforces recessionary pressures and signifies a vote of ‘no confidence’ in current policies and economic leadership. We have seen equities fall sharply, creating a real dilemma for institutional investors, including pension funds. We have seen perversely massive flows into US treasury bills, which does not reflect any intrinsic strength of the US economy but, quite simply, a lack of alternatives for very spooked investors. The VIX index, which measures market volatility, spiked this week at levels which indicate just how spooked the markets are.
The most striking feature of all this is that the global financial crisis has not gone away. In the eurozone, ‘leaders’ have attempted on two occasions to ‘fix’ the instability that is in fact built into the system.
Moreover, the two Financial Stability mechanisms — the more recent one to take effect in 2013 — raise serious issues regarding their constitutionally and compatibility with all of the provisions of the treaties.
There is little left that European ‘leaders’ can now throw at these problems. We need, even at this 11th hour, to be very clear and dispassionate about the events that are unfolding in the markets and their significance, not least for macro-economic management in Ireland.
The eurozone Troika — Germany, France and the ECB — have used up pretty well all of the policy instruments available to them to mitigate the crisis and to prevent it spreading — particularly to the US. They have failed.
These policies have been characterised by deep and very public differences, back-biting and by policy reversals. Hopelessly confused, they have exacerbated the underlying institutional deficiencies. They dissipated market confidence like some kind of spend-thrift.
The ECB, for its part, has effectively revoked its own Constitution which prohibits ‘bailouts’. Its balance sheet is stuffed with the sovereign debt collateral of countries on the brink of default. Its ability to conduct monitory policy has been subverted.
The punitive nature of the adjustments forced on countries as the price for assistance from ‘partner countries’ has been thrown into sharp relief by the recent deal on Greece. Interest rates were reduced from levels at which they should never have been set.
These concessions were extended to Ireland — not as a matter of policy, still less as a matter of principle, but as a necessity expediency revealing the paucity of any strategic vision regarding how to deal with this spiralling crisis. For the first time there was mention of growth and jobs. The case for such a rebalancing has been argued in these pages on many occasions. It found no resonance in either Irish economic policy or in the eurozone — until its ‘leaders’, thoroughly spooked by events spiralling outside of their control and by the collateral damage to the balance sheets of core European and also US banks, suddenly backed-off. The European Commission — which had censored the Credit Rating Agencies for the temerity of adding two and two, has found itself making the case for a fundamental revision of policy, and has been censored by Germany.
The eurozone now represents less a single currency areas than some kind of nightmarish ‘Hotel California’. Is it any wonder the markets have so little confidence and that this lack of confidence should now have morphed into a crisis encompassing the US, and, therefore the global financial system.
In the US, the 11th-hour agreements last week on raising the debt ceiling should not be dismissed as political theatre. The time period for adjustment is 10 years. The eurozone ‘authorities’ sought to impose on Ireland an adjustment in half of that time. But even more fundamentally, the stark reality is that, when account is taken of actual and contingent liabilities and the prospective growth rate, the US economy is in worse shape than Greece.
The economic forecasts on which Ireland’s budgetary policies — and the bailout — have been constructed, have now shown to be wholly wrong. So, too, have the policies. They simply aren’t working. All there is to show for all the sacrifices are a sovereign debt rating of junk status, a shrinkage of employment of 15% and ‘Closed’ and ‘For Sale’ notices right across the economy.
This is not leadership — it borders on the willful to adhere to policies that are demonstrably not working and that have mired the eurozone in a crisis, from which it is seemingly incapable of escaping. Ireland needs to leave.
It would, of course, have been far better had we left earlier — not through a lack of solidarity with fellow members of the EU; but simply because structural deficiencies in the eurozone itself are generating profound anti-European sentiment, paving the way for political extremism.
The argument has been made repeatedly in these pages that Ireland needs to pull out of a eurozone that is imploding. Ireland needs certainty and stability — and courage. We can rebuild our economy, and regain access to capital markets, on the basis of credible growth-based policies.
Read more: http://www.irishexaminer.com/business/failure-of-leadership-in-the-eurozone-means-ireland-must-exit-now-163440.html#ixzz1UHliTVDrThis appeared in the printed version of the Irish Examiner Saturday, August 06, 2011... more
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The eurozone’s woes are giving us a preview of what could eventually happen in the United States (but not before Europe is engulfed first). As fears of sovereign debt crisis mount, the debt “contagion” spreads. It is not just Greece that has investors afraid, but Portugal. And Spain… and Italy… and so on.
The problem is classic, and long ago highlighted by Austrian economics. Building up a lot of debt, to make a slightly crass analogy, is like putting on a bunch of weight. It’s hard work getting the debt off – the same as it is taking weight off.
The way to lose weight is to eat right and exercise. The way to get out of debt is to cut back on spending and increase productivity.
But when an economy is already weak and sick, it’s very hard, if not impossible, to cut back on spending easily… just as it’s very hard for an obese person to put in vigorous exercise when they are ill.
This is why IMF “austerity measures” have proven so disastrous in the past. To lose weight (or debt), you need vigorous exercise (or spending cuts). But when you are sick, you need the opposite thing – rest and nourishment. Exercise is no good for a sick man. It only makes him sicker.
And so, asking a country like Greece to clamp down harshly on spending, even as their economy reels, is like asking a heavyset man with mild pneumonia and fluid in his lungs to start running five miles a day. Harsh cutbacks at the wrong time become a recipe for collapse.
This extends back to the central failing of Keynesian economics. Keynesians argue with gusto that government should act as a counterbalance to the free market economy, spending in hard times and saving in good times to keep things balanced.
This sounds reasonable in theory. In the real world, though, the government only gets half the equation right. It never saves in the good times. It only spends, spends, spends.
And so Keynesian economies inevitably find themselves in the most vulnerable position… indebted and sick at the same time.
Spain’s Pain
If you can understand this, you can understand why Europe’s problems are not going away. Investors are beginning to realize, with horror, just how sick the various eurozone countries really are. And that sickness will make it very hard, if not impossible, for these countries to address their looming debt issues without descending into political unrest… or collapsing into economic depression.
Take Spain, for example. Recent reports put Spanish unemployment above 20%. Youth unemployment in Spain is reaching civil unrest levels, with the jobless rate for under-25s above 40%.
What investors must face, now, is the prospect of yawning black holes when it comes to sovereign debt. As former IMF economist Simon Johnson wrote last week,
The nightmare for Europe is not at this point about Greece or Portugal – it is all about Italian and Spanish bond yields… The yields for Spain – for example – are rising because hitherto inattentive investors, who always thought these bonds were nearly as safe as cash, suddenly realize there are reasonable scenarios where those bonds could fall sharply in value or even possibly default.
So now we have a situation where faith in eurozone debt is rapidly crumbling. Investors are losing their taste for holding these bonds – and the fear is contagious.
And here’s where the problem takes a familiar turn. Guess who has the most exposure to potentially toxic eurozone debt?
Once again, it’s the banks.
The banks are at the heart of virtually every big financial crisis, it seems… and they are at the heart of this one too…
Why France Freaked Out
The following chart from Spiegel (click to enlarge) shows why French President Nicolas Sarkozy is so desperate to have Greece bailed out.
French banks have massive exposure to Greek debt – more than 75 billion dollars’ worth. As a country, France is the single largest creditor to Greece. (The yellow slice of the pie labeled “andere” means “other,” and includes multiple countries.)
And remember, too, that Greece is just the beginning. Fears are mounting as to the solvency and credibility of all sovereign debt issues. Spain alone – a country whose debt got downgraded by Standard & Poor’s last week – is roughly five times bigger than Greece in GDP terms. And Italy is half again as large versus Spain.
American Banks Too
Nor is this just a problem for Europeans. In terms of sheer size, guess which two banks have more exposure to eurozone sovereign debt than any other? (Hint: Both of them have “Morgan” in their name.)
As Bloomberg recently reported (emphasis mine),
JPMorgan Chase & Co., the second- biggest U.S. bank by assets, has a larger exposure than any of its peers to Portugal, Italy, Ireland, Greece and Spain, according to Wells Fargo & Co…
“Regulatory data suggests JPMorgan’s exposure is largest in aggregate, but Morgan Stanley held the largest aggregate exposure to the PIIGS relative to Tier 1 capital”…
What that means, basically, is that JPMorgan has the biggest trade on in absolute dollar terms, but Morgan Stanley has the biggest exposure relative to the size of its trading account.
Remember Northern Rock?
Here is the bottom line:
• The major eurozone economies are caught in a downward debt spiral.
• IMF rescue funds are a temporary stopgap at best.
• The total debt involved, all problem countries included, runs into the trillions.
• As banks own much of this debt, we have the recipe for a new banking crisis.
• Some eurozone banks are not just “too big to fail,” but “too big to bail.”
• Continent-wide bank runs are not out of the question.
In the Fall of 2007, Britain saw its first full-on “bank run” in more than a century. Northern Rock, a troubled British bank knee-deep in mortgages, had lost the confidence of its depositors. As fears mounted, Northern Rock bank branches saw long lines of customers desperate to pull out their cash, like the classic runs of 100 years ago.
If the eurozone debt situation continues to spiral downward, we could see the same dynamic once again – but with “sovereign” replacing subprime, as depositors all across Europe wonder just how much trouble their savings accounts might be in.
The irreplaceable element, the sine qua non, of all fractional reserve banking regimes is confidence. Banks routinely balance huge balance sheet positions on tiny slivers of capital. They can only do this as long as confidence in the system is strong. When confidence ebbs away, the result can be deadly.
Approaching the Point of No Return?
To make matters worse, Europe is still in denial as to the seriousness of this problem.
There is such a strong focus on “containing” the problem – keeping it to just Greece – that vital preparations are not being made for Plan “B”… what happens when panic spreads beyond Greece.
Call it risk management at its worst… or head-in-the-sand politics at its best. Fervent hope that the problem will not grow bigger has replaced realistic preparation as to what should be done if it does.
We have already touched on parallels to Lehman Brothers, the touchstone of the global financial crisis, and further to the Northern Rock bank run and escalating subprime fears of 2007.
But in some ways the strongest parallel of all stretches 18 years back – all the way
to 1992 – and it gives a strong hint as to just how this whole thing could be resolved. Stay tuned…
Don't forget to follow us on Facebook and Twitter for the latest in financial market news, company updates and exclusive special promotions.The eurozone’s woes are giving us a preview of what could eventually happen in... more
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